By Nancy Perkins
“Where do I go next?”
That’s the question would-be home sellers are asking themselves all over town. With average home prices in Alexandria up 10% and inventory down 29% across Northern Virginia in April, according to Real Estate Business Intelligence, many sellers are eager to capitalize on the equity earned in their homes over the last several years.
These would-be sellers may be empty nesters looking to downsize their home for their new lifestyles or growing families looking to upsize, as their families and home office need to expand.
Why aren’t these would-be sellers listing their homes? They fear that if they put their current homes on the market, they will not be able to find a new home in 30 days. However, with skilled realtor and lender partners, potential sellers have a number of strategies to ensure a seamless transition from one home to the next.
With homes in Alexandria going under contract in in an average of 19 days in April, according to RBI, and so few homes on the market, it is natural to feel anxious about finding a new home in time. However, sellers can leverage their position in the sale of their current home to seek a 60-day or longer settlement date. Longer settlements are possible, but if the buyers are financing their purchase, they might have to pay a fee to their lender to lock in their interest rate for a longer period of time.
Post settlement occupancy
Sellers can negotiate a “post-settlement occupancy” on their home of up to 60 days. A post-settlement occupancy, or “rent-back,” allows sellers to close on the sale of their current home, freeing up cash for the purchase of a new home, while staying in their current home and looking for their next home. Combined with a 60- day close, a 60-day rent-back will provide sellers with four months to find a new home.
Home choice contingency
Although seldom used, a “home of choice contingency” allows sellers to sell their home contingent on their ability to find a new home in a specified period of time. If the sellers are unable to find a new home within the given timeframe, the sales contract is void, and the buyers are released from the contract. This is admittedly a riskier strategy for buyers, but in cases where the sellers own a very popular home, buyers might be willing to take the risk.
Buy before you sell
The easiest way to ensure sellers are able to purchase the home of their dreams is to purchase the new home first and then sell the old one. Depending on the sellers’ financial situation, lenders may be able to provide them with a bridge loan or equity line for the down payment on their new home. These loans are then paid off as soon as the sellers’ home is sold.
In some cases, if the sellers have prepared their current home for sale before they purchase their new home, they may be able to close on the sale of their current house before they close on the sale of their new purchase. In this case, they would first ratify a 60-day contract on their home purchase, and then promptly list their current home for sale and seek a 30-day close on that contract. Sellers also use this strategy to avoid cashing out their investments to procure a down payment.
Lease to try a new neighborhood
Some sellers are opting to take advantage of this sellers’ market and sell their current homes, and then lease a new home. This strategy works well for downsizing couples who are interested in trying a new lifestyle or a new neighborhood, but who aren’t ready to commit to this new path.
For instance, a couple who lived in a 5,000 square foot suburban home for 20 years may want to try living in a 2,000 square foot town house in town. A lease may be a great tool to test out this new lifestyle. It is important to note that for sellers still building wealth, a lease lacks both the tax advantages and wealth building equity of a home purchase.
While buying in a sellers’ market can be intimidating, sellers should take comfort in knowing that there are many strategies a realtor can help them employ to make their home purchase easier. With interest rates at historically low levels and home prices predicted to keep rising, this really is a great time to buy a home.
The writer is a lifelong Alexandrian and an award-winning realtor recognized by Washingtonian Magazine and the Northern Virginia Association of Realtors.